Brazil's New 'World Bank'-Sized Crisis

What does she know? Maria Silvia Bastos, chief executive officer of BNDES. Her career ended abruptly in May following revelations of a new bribery scheme involving a former Finance Minister and the world's biggest exporter of chicken, beef and pork, known by its acronym JBS. (Photographer: Dado Galdieri/Bloomberg)

Brazil's latest political scandal may come with a bigger price tag than the one already stuck on the Petrobras 'Car Wash' probe. If the government's BNDES development bank lost just half of what Petrobras did in bribes, the kickback scheme there would have cost twice what it cost Petrobras, its local and foreign investors, and the Brazilian tax payer.

Petrobras, Brazil's state-controlled oil firm, lost anywhere from $2 billion to $5 billion in a decades-long scheme that saw private sector companies awarded lucrative public works contracts in exchange for political kickbacks and cash-money for Swiss bank accounts. The scandal ultimately ended 13 years of Workers' Party rule in Brazil, culminating in the impeachment of president Dilma Rousseff a year ago. Her vice president, Michel Temer, is now in the cross-hairs.

No one outside of Wall Street bond lords have ever heard of BNDES. BNDES stands for Brazilian National Social and Economic Development Bank. It's now part of a new federal police investigation into government fraud and white collar crime, this one called 'Operation Bullish'. Its president, Maria Silvia Bastos, resigned last week.

It started with the world's biggest and richest meat company JBS, owners of the Swift and Pilgrim's Pride brand in the United States. Their CEO, Joesley Batista, a local billionaire, said he paid Brazil's former Finance Minister Guido Mantega upwards of R$200 million ($61 million) in bribes for access to the subsidized, easy money loans of BNDES.

All told, JBS managed to get R$12.8 billion ($3.92 billion) in BNDES loans between 2002 and 2013, helping JBS super levered profits go from R$4 billion in 2006 to R$170 billion in 2016, according to company financial statements. Other than 2002, when Brazil was governed by the Social Democratic Party (PSDB), the bulk of JBS take of BNDES resources occurred during the presidency of Luiz Inacio Lula da Silva. Lula is under investigation for being a big player in the Car Wash scheme. He says he is innocent.

They all say they are innocent.

Nevertheless, looking at BNDES and you can see that it dwarfs Petrobras. Petrobras' current market cap is around $55 billion. BNDES loan portfolio is R$623.9 billion ($191.04 billion). Making a crude analysis, if Petrobras lost roughly 10% of its market cap to fraud ($5 billion), if BNDES lost just half that, or 5% of its loan portfolio to fraud, it would be nearly double the losses Petrobras faced in its bribe scheme, or roughly $9.5 billion.